Lower tops and bottoms worry

TECHNICALS

The markets started trading on a weak note and ended Wednesday's session with 1.5 per cent losses. Traded volumes were sharply lower compared with Tuesday and on the 10-day average basis.

The breadth was highly negative as declines overwhelmed advances 886 : 1754 on the Bombay Stock Exchange and the National Stock Exchange combined. The capitalization of the breadth was also very negative as the figures on the two exchange were Rs 1,749 crore: Rs 5,910 crore.

Derivatives figures available for Tuesday's session show a marginal rise in outstanding long positions by about Rs 20 crore. That is a sign of concern as there is a lack of conviction by bulls even at lower levels.

The increase has come about in the options segment. The futures segment is seeing lower interest. The Sensex and the Nifty are nearing their critical levels of 5690 and 1812, respectively.

The indices are now making lower tops and bottoms and the previous significant highs have not been surpassed.

That makes the undercurrent extremely cautious and players are likely to prefer offloading their positions at higher levels. The resistance on the upsides are likely to come at the 1866 and the 5825 levels on the Nifty and the Sensex, respectively.

Traders need to keep an eye on the technology sector which is heavily weighted on the indices and a swing in any direction is likely to create an impact on the markets.

The outlook for the markets on Thursday is that of caution as the bulls are clearly on the defensive and the volumes are lower. Volatility is likely to be exaggerated on poor volumes and cause a threat to capital.

Among stocks, Tata Power this counter is showing extreme bullishness as the flag formation is confirmed and investors with a medium term perspective may buy at current levels with a stop loss at Rs 380 levels and a target of 10 per cent gains in the short / medium term.

Buying maybe initiated in the cash and mid month series in the derivatives series.

I continue to advocate selling Nifty straddles at conservative strike prices and in minimal lots only.

Vijay L Bhambwani is CEO, BSPLindia.com

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com or ( 022 ) 23438482 / 23400345.

Sebi disclosure: The author has no outstanding positions in any of the stocks mentioned above.